The Bhutanese Leading the way.
When the Bhutan Venture Trading’s (BVT) letter to Bharat Heavy Electricals Limited (BHEL) agreeing to a commission for Punatsangchu II (P II) and Mangdechu came out, virtually all senior officials associated with the process denied having any knowledge of it.
Although no allegation was made by this paper, even then the former ruling party, Druk Phuensum Tshogpa (DPT), issued a release saying that any contractual transaction between BHEL and Sangay Wangchuk, owner of BVT, had nothing to do with the previous government.
It now emerges that BHEL in one of the first few sections of the 2012 Mangdechu project bid document for electro-mechanical equipment had declared its intent to hire BVT as a ‘local agent’ at a rate of 1.35 percent of the contract value. With the contract being valued around Nu 6.94 bn, the commission would be worth around Nu 94 mn, just for Mangdechu. As per the overall 1.5% commission for a Nu 16 bn tender for both projects, the commission amount comes to around Nu 240 mn.
This information matches the letter sent by BVT to BHEL in September 2010 agreeing to be a local agent for 1.8 percent of the bid value of Punatsangchu II (P II) and 1.5 percent for P II and Mangdechu combined. This essentially meant that while BVT would first take a commission of 1.8% for P II, it would be adjusted with a lower percentage for Mangdechu such that it would be an average of around 1.5% for both projects.
BHEL had to declare the name of its local agent as the Mangdechu project management had decided to follow international best tendering practices that makes it compulsory for a bidder to declare the name of any agents if the company was hiring one.
However, since the earlier Punatsangchu II bid awarded to BHEL in June 2012 did not adopt the same best practice as Mangdechu, BHEL had not mentioned or declared that it had such an agent.
The Mangdechu project level tender evaluation committee (PLTEC) consisting of both project and government officials first came across this declaration. The committee consisted of mainly
technical experts, like senior engineers from Mangdechu project, a senior engineer from the Ministry of Economic Affairs, members from the Bhutan Power Corporation (BPC), Druk Green Power Corporation (DGPC) and consultants from the National Hydro Power Corporation (NHPC).
Even the more senior Authority Level Tender Committee (ALTEC) consisting of senior project management officials and senior government officials came across this declaration. A reliable source said, “There was some discussion in the committee on the issue of hiring an agent for a nominated bid where two governments had decided to give the bid without any competition to a government company. However, the committee did not pursue the matter further as it felt that its mandate was limited to looking at only the technical and financial aspects of the bid.”
The source further said, “Since the bid document itself was prepared by the consultant from NHPC, and not the committee questioning or objecting to the agent would itself mean revisiting the entire bid document. The committee did not have any mandate to investigate, get more details or question BHEL’s hiring of an agent.”
The ALTEC consisted of Mangdechu project management, like the Joint Managing Director Chencho Tshering on deputation from BPC, Director Finance Praveen Nandwana, Director Technical G. Baidya and others like Chief Engineer Karma P Dorji from MoEA, DGPC representative, BPC representative and the NHPC consultant.
A senior MHPA official on the condition of anonymity said, “When these committees came across the declaration of agent they asked BHEL to clarify and BHEL said that BHEL would make the payment from its side to the agent.”
The above finding and discussions establishes the fact that government officials, government representatives and senior project management officials on both the tender committees knew about BHEL and BVT before the tender was awarded.
The senior MHPA official said that once the two committees had gone through the nearly 1,000 page bid document and the relevant recommendations then it came up its own recommendations on the bid and submitted it to the Managing Director A.K Mishra.
The senior PHPA official said that the MD who is the member secretary of the Mangdechu Hydroelectric Project Authority (MHPA) then prepares an agenda and summary of the main points of the bid and the recommendations of the ALTEC tender committee and the management.
A separate reliable source said that the MD also carries all other relevant bid documents and relevant information in case the Authority demands further explanation on any issue.
The MHPA which was chaired by the former MoEA Minister Khandu Wangchuk then awarded the bid to Mangdechu after some discussion.
The MHPA consists of members like the MoEA Secretary, Finance Secretary, Ministry of Labour and Human Resources Secretary and from India it had the Joint Secretary North, Additional Secretary and Joint Secretary Hydro.
Former Minister Khandu Wangchuk empathetically denied knowing about any such clause in the tender document.
He said, “The bids for hydro projects are not like normal bids as there are various levels, like PLTEC, ALTEC who look at the details and finally they give their recommendations to the project MD. What finally comes to the authority from the MD is only the main recommendations and points from the committee like technical and price issues. In the presentation made to the authority there was no mention made of BHEL having any agent.”
The former minister said that the Authority is not meant to go through the detailed 1,000 page document and it would not understand it even if it tried as all the relevant experts were at the PLTEC and ALTEC level who did the actual vetting.
The MoEA Secretary Dasho Sonam Tshering who is also a member of the Authority said the same saying that only a summary or the main issues were brought to the Authority meeting and no information was provided on any agent.
Former Minister Khandu Wangchuk said that the minutes of the Authority meeting by itself would show that there was no information or discussion on BHEL hiring BVT. He said that if the issue of the agent had been known there would have been a separate discussion on the issue in the Authority.
A matter of interest is that while the two tender committees PLTEC and ALTEC had officials from the MoEA, BPC, DGPC and also senior project management officials, both the MoEA Secretary and the former MoEA Minister have said that they were in complete darkness on the issue of BHEL and BVT.
The MoEA is the ministry under which the entire 10,000 MW by 2020 is being initiated and its minister is the de facto chairman of any hydro project authority. This means the project management of any hydro project is accountable to the chairman and the Authority headed by him. The former MoEA minister was the chairman of both the PHPA and MHPA. The MoEA Secretary also becomes a member of any Authority given the main role played by MoEA in 10,000 MW.
The MoEA also has the Department of Hydropower Services which plays an important and close role in the planning, tendering and implementation of the hydro projects.
Though BVT claimed to provide various ‘services’ to BHEL, the senior MHPA official said that MHPA had no interaction at all with BVT since the last few years. He said that declaration did not even given the address or other contact details of BVT and that MHPA had been dealing only with BHEL officials.
The senior MHPA official said that the Authority and project management had not just gone by the price originally quoted by BHEL, but had successfully reduced the original bid of BHEL by 1.1 bn.
The price had been reduced by the Authority after apparently intense negotiations in Delhi. However, it is a matter of interest here that, during the negotiations, why no official aware of the issues raised the matter of 1.35% of the contract commission to be paid by BHEL to BVT and its implication on the price.
With both government officials and project members in the two tenders committees mandated to get the lowest price possible, another issue would be on why there was no further enquiry at the tender committee’s level on the overall price impact of a 1.35% commission to an agent on a nominated tender.
One issue would also be why the various agencies involved did not study the legality and propriety in allowing an agent for a government nominated tender being given by both government to a government company with no competitive bidding.
It is also interesting to note that no further information was sought on the specific role that the local agent would be playing to deserve such a huge cut.
Also two examples of the past show how the government, on being made aware, went out of its way to cut out agents and middlemen even in competitive bids involving private companies.
In 2007 a Finance Ministry Circular specifically prohibited the appointment of any middlemen or agents in the case of tendering the controversial Bhutan Lottery. Similarly, a letter issued by the Druk Air Corporation to Boeing in 2002 with relation to the purchase of airplanes for Druk Air states the government policy is not to have agents or middlemen. The letter also states that no lobbying is allowed.
With the BHEL being a government company subject to Right to Information laws and also transparency one issue would be why no public announcement was made in the media on its intent to hire an agent.
There is also no Indian law that allows for a government company, like BHEL, to hire a local commission agent for a bilateral project bid already being given to it without any competition by the two governments. While the Reserve Bank of India and Royal Monetary Authority can authorize transfer of payments to either country, both agencies have no say in appointing agents in such deals.
The unanswered question also is in the nature of services being done by BVT. The BHEL local office here virtually handles all issues regarding BHEL, and moreover, none of the project and government agencies dealing with BHEL has ever interacted with BVT.
The Bhutanese sent a list of questions on some of the above issues to an identified focal person in BHEL on Wednesday and also alerted its local representative in Thimphu, but there was no response as the paper went to print on late Friday.
